Capacity and Glove Supply
Manufacturers’ capacity is available and under-utilized following their recent expansion from the worldwide increase of PPE demand in the last two years. Pricing continues to stabilize but is not back to pre-pandemic levels as manufacturers fight for orders to fill their capacity. Lead time has improved due to the availability of critical commodities, logistical capacity, and decreased order volume.
The market has been flooded with different types of single-use gloves from new suppliers and long-time industry players. For most, the inventory-to-sales ratio is high, which compounds carrying costs. It has become a buyer’s market due to the abundance of choices and supplies available.
Effects of Inflation
Global inflation accelerated by Russia’s invasion of Ukraine and supply chain disruptions have jeopardized economic growth plans. Inflation climbed 8.5% in July from a year ago; although it is a lower number as expected, the inflation pressures remained strong. The escalating energy prices also posed a manufacturing challenge to their operational costs, boosting the cost of products and services directly or indirectly. Gas prices peaked for the summer, and the decline was not fast enough. On average, it costs 47 cents less per gallon than it did a month ago, but it is far higher than last year due to continuing battle between supply and demand.
These causes are vastly interconnected, affecting the glove industry. Manufacturers see the effect as they struggle to transport raw materials due to the expensive transportation cost. The raw materials downtrend is expected to reverse with the rising crude oil price, high energy, and transport cost.
With the rising cost and downturn in demand, large glove manufacturers can benefit from the cost reduction associated with large-scale production. They can offer the product at much a lower price per unit, pricing out small manufacturers that cannot compete. Their cost advantage is a factor in gaining a competitive strategy and dominating the industry in the next few years.
Surging Shipping Cost and Supply Chain Disruptions
As gloves are mainly produced in Southeast Asia, the spiking cost of logistics and shipping becomes crucial factors in getting our supply. It now costs about $7,980 to transport a 40-foot container from China to the US’s largest gateways for trade on the West Coast on a long-term contract, more than double the $3,070 paid a year ago. Meanwhile, prices for near-term movements also increased 47% from last year.
The current congestion in ground transportation affects the cost and delivery times. There is a backlog of rail-bound containers related to crew shortages and lack of equipment, and it is taking up space on docks. Meanwhile, railroad companies and ports are levying high demurrage fees amidst the growing chassis shortage. In the Port of Los Angeles, there are more than 29,000 rail-containers units on the ground with an average of 9 days or more delay on pick-up schedule.
Rail now is generally a cheaper modal option because truckers struggle with a severe driver shortage, tight capacity, and sky-high fuel prices. This demand caused an imbalance in rail equipment availability because containers heading inland aren’t being promptly unloaded and returned to terminals.
Overall, the freight rate is not expected to go back to the pre-covid level, and the uncertainty of equipment shortage and labor negotiation is the hot topic every day, which aggravates supply chain disruption leading to longer transit time and delay.
Call It A Reset
These sweeping changes affect the industry by reforming the global business and directly impacting the foundational business models companies have run for decades. It has become a pivotal point for organizations to re-evaluate and hit the reset button to prevent a downward spiral. Their financial bottom line will impact businesses’ stability. Embracing this perspective is not only for the business imperative it outlines but also for the opportunity to establish relevance and better serve its stakeholders.